Movin' up with downloads: Investors sign on as app market grows

App maker Detroit Labs LLC just moved into the Madison Building downtown. From left are co-founders Dan Ward, vice president of business development; Nathan Hughes, vice president of software engineering; Henry Balanon, director of mobile; and Paul Glomski, CEO.

What began as a trickle in 2008 has become a flood of local mobile smartphone app development and downloads. Five local app developers have had aggregate downloads of more than 1 million each, a local trade association continues to grow rapidly, and investors are pouring money into the space.

Dan Gilbert, founder of Detroit-based Quicken Loans Inc., and Josh Linkner, founder of Pleasant Ridge-based ePrize Inc., are the highest-profile investors in local smartphone apps. Their investment firm, Detroit Venture Partners LLC, formed Detroit Labs LLC in the spring to do app development for large commercial clients and to serve as an incubator for app-based companies they hope to spin off.

Three weeks ago, Detroit Labs moved into the recently rehabbed Madison Building in downtown Detroit, one of a spate of buildings Gilbert has purchased.

"This is a great market opportunity, and it cements downtown Detroit as the latest hotbed of smart-app technology," said Linkner. Detroit Venture Partners has invested in 11 portfolio companies this year, and seven have been in the mobile industry, including Flud LLC, a San Francisco-based company that allows users to aggregate news feeds and blogs and which opened up a local sales office downtown.

An Ann Arbor-based company, Mobiata LLC, made the first big splash in the local app-developer scene when it was sold a year ago to Expedia Inc., the Bellevue, Wash.-based online travel company, for an undisclosed sum believed to be well into seven figures.

The company had been a tenant in TechArb, a University of Michigan tech incubator for student-founded companies.

Mobiata, whose FlightTrack app allowed users to see updated status reports of flights, generated more than $1 million in sales its first year and ranked in the top five downloads at the Apple app store for 18 straight months.

New TechArb tenants include Fantasy Fitness League, an app company that plans to help dieters lose weight by forming teams of competing dieters, and Fetchnotes, an app that reminds people of things to do on the go, which was the subject of a recent Wall Street Journal blog.

Daichendt

"The demand for developers here far exceeds the supply," said Linda Daichendt, executive director of the Mobile Technology Association of Michigan, a nonprofit trade association formed in 2009. "One of the things we're working on is getting more trained developers out there."

The association is based in Southfield, but Daichendt said she has been looking at locations in downtown Detroit and hopes to be there sometime next year.

The association has a paid membership of 150 and is a sponsor of Mobile Monday Michigan, which has grown in 18 months from zero to nearly 1,300 members statewide. It holds monthly meetings in Grand Rapids, Detroit and Ann Arbor.

"Mobile Monday is more indicative of how the industry is growing here," said Daichendt, who said she hopes to add groups in Lansing, Kalamazoo and Traverse City next year. "You pay for membership in the association, and Mobile Monday meetings are free, so naturally we get a lot more people at those. And we get more attending every meeting."

According to a variety of industry watchers, the industry will continue to grow dramatically over the next few years. The worldwide technology research company Gartner projects the number of downloads to go from 8 billion in 2010 to 21 billion in 2013, and revenue from mobile-app stores worldwide to go from $6.2 billion to nearly $30 billion.

Those dollar figures are all the more impressive considering that estimates are that eight of 10 are free.

According to Bango Analytics of New York, which analyzes mobile traffic and marketing campaigns for businesses, app developers are fast moving away from the get-if-for-free model, with 45 percent of developers saying they plan to commercialize their apps directly, outside app stores.

Or, like jacAPPS LLC of Southfield, create apps, often at a cost of $20,000 to $30,000, for corporate clients. JacAPPS was spun off in July from Jacobs MediaInc., which does marketing and consulting for radio stations around the country. The company is by far the leading app developer in metro Detroit, with aggregate downloads of more than 11 million, and is looking for investors to help ramp up hiring and app development.

Tom Kinnear, a veteran angel investor and executive director of the UM's Zell Lurie Institute for Entrepreneurial Studies, said that while the app world has received a lot of attention lately, context is needed. "A lot of it has been overhyped and overvalued. There have been some successes, but, so far, very few people are making much money," he said.

"It's not like medical devices or diagnostics or enterprise software, which have made people a lot of money. You're talking about 99-cent downloads on your phone. For the most part, it might make for a decent living, but it's not anything on a major scale, yet," he said.

One train of thought in the Internet/mobile world is that HTML 5, the newest hypertext markup language for the Internet, will over the next few years make websites so content rich, user friendly and able to run on low-power devices as smartphones and tablets that downloadable mobile apps will become obsolete.

Last week, however, tech blogger Rafe Needleman, a former editor at Red Herring magazine and now an editor at CNET.com, wrote that HTML 5 will actually boost app development.

While sales through app stores may decline, Adobe has started releasing high-quality HTML 5 developer tools, "so we should be about to see a flood of new Web-based mobile apps," he wrote.

"I agree," said Daichendt. "You read all the articles that better websites are going to make apps obsolete, but they won't. HTML 5 will make mobile apps much more user friendly, across all platforms and phones."

The first smartphone is generally considered to have been the IBM Simon in 1993, which had fax capability and a personal digital assistant. Some say the real start of the smartphone revolution, though, came in 2002 with the introduction of the BlackBerry, which allowed for wireless email.

But what really made the smartphone smart was a decision announced by Apple Inc.'s Steve Jobs in 2008 to create a developer community for the iPhone that wasn't housed inside the company. That decision did for app development what cloud computing has done for the world of IT.

Some 24,000 developers applied to Apple to create apps that first year; 4,000 were approved. The rest is smartphone history.

According to Gartner, the worldwide technology consulting firm, total annual app revenue will hit $30 billion in 2013, based on 21 billion downloads, up from $6.2 billion on more than eight billion downloads in 2010.